m 


■.    /..iW 


HF 

5500 

A96l 


^<!/0JllVJJO>' 


<ri]30NVSm^ 


%a3AiNnmv^ 


vvlOSANCElfXx 
5 


^^.OFCAIIFO/?^ 


^OFCAIIFO/?^ 


A\\EUNIVER%       ^lOSANCElfj> 


%a3AiNn-3Wv        >&AbVjian-^^'^      ^(^AiivaaiH^        <ri]30NYsoi^      ^/^aaAiNn^wv 


^^t-LIBRARYO^ 


^<i/ojiiv:jo^ 


aweuniver^ 


o 


vvlOSANCElfj> 
o 


"^/^aBAINH-^WV 


^^llIBRARYQr 


-^^lllBRARYOc 


^(i/OJITYDJO^ 


^.!/0JllV3JO^ 


^^.OFCAIIFO/?^ 


^WE•UNIVER% 


o 


vvlOSANCElfj> 

o 


,^;OFCAllF0/?;i^ 


>;;OFCAllF0ff^ 


%aaAiNa]WV^      '^<?AMaiH'^    "^OAavaaii-^ 


^lOSANCElfj> 


%a3AiNn-3W^ 


^HIBRARYQo        ^^^IIIBRARYQ^^ 


aWEUNIVERJ/a 


vjsclOSANCElfx^ 


^<!/0JnV3JO>'       ^<i/0JnV3JO>'  ^Til^ONVSOl^'"         ^/^a3AINn-3WV 


^lOSANCElfX/ 
o 


%a3AINn-3WV 


^•OFCAUFO/?^       ^OFCAL[FO% 


"^OAavaaiii^^    "^ 


"^^AavaaiHS^^ 


^\\EUNIVERS/A 


^lOSANCElfj> 
o  ■^    ^ ^   - 


> 

so 

■^/5a3AiNn-3WV^ 


^^UIBRARY<9/^         ^^WEUNIVERJ/^       ^^lOSANCElf/^ 


^<!/0jnV3JO^ 


o 


■%a3AINn-3WV 


-v^lLIBRARYQ/:         ^tllBRARYQr 


^(tfOJUVJ-JO"^^ 


^<!/0JllV>JO^ 


.>j.OFCALIFO% 
> 


^^^E•UNIVER5/A 


v>:lOSANCElfj> 
f  y^ — .^ 


<ril30HVS01^         %a3AINn-3V\V 


^OFCALIFO/?^ 


>;,.OF-CAIIFO/?^ 


4? 


^^AHvaan-i^      >&Aavaani^ 


^lOSANCElfj> 

Q 


-^lllBRARYOc 


^lllBRARYOr^ 


^\^EUNIVERS'//, 


^lOSANCElfj> 
o  ■ 


LauncKin^  a  Ne^v 
Enterprise 

By 
MOiS  H.  AVRAM,  M.  E. 


President,  M.  H.  Avram  &  Co.,  Inc.     Member,  American  Society 

of  Mechanical  Eng,ineers.    Member,  American  Association  for  the 

Advancement  of  Science.     Lecturer  on    Industrial  Engineering, 

New  York  University 


AMERICAN  INSTITUTE  OF  FINANCE 
BOSTON 


"rOMPLRTE   EDUCATIONAL    COURSE" 

IN  THE  SCIENCE  OF 

MAKING    MONEY   MAKE    MORE   MONEY 

This  list  is  arranged  in  the  order  of  proper  reading.  The 
books  are  accompanied  by  a  series  of  test  questions,  key  prob- 
lems and  analyses  outlines,  enabling  the  student  to  apply  the 
knowledge  acquired  to  immediate  stock  market  and  investment 
contiitions. 

1.  Developiug  Financial  Skill      11.  Investment  Securities 

2.  Forces  Which  Make  Prices      12.  Business  Cycles 

3.  Manipulation  and.  Market      1^-  Measuring   and   Forecasting 

General   Business    Condi- 
tions 


Leadership 

4.  Handling  a  Brokerage  Ac- 

count 

5.  Market  Information 


14.  The  Technical  Position  of  the 

Market 

15.  Money  and  Credit 


6.   The  Essential  Features  of      ^^    Business  Profits 
Securities 


7.  The    Value  of  a  Railroad 

Security 

8.  Industrial  Securities 

9.  Oil  Securities 

If).   Mining  Seen rities 


17.  Launching  a  New  Enterprise 

18.  Securing  Capital  for  Estab- 

lished Enterprise 

19.  Internal  Financial    Manage- 

ment 

20.  Search  for  Bargains 


Copyright,  1922,  by 
American  Institute  of  Finance 


TABLE  OF  CONTENTS 


Chapter  I.     Essentials  of  a  Business  Enterprise  Pa^e 

Development  of  New  Enterprises       . 5 

The  Personal  Equation 6 

Profits,  the  Business  Man's  Test 6 

What  are  the  Potential  Profits? 7 

Essentials  to  Consider 7 

What  are  the  Essential  Factors? 8 

The  Undertaking  Itself 9 

Management ....  9 

Finances 10 

Starting  Under  Favorable  Conditions 11 

What  Steps  to  Take 11 

Chapter  II.     Testing  the  Soundness  of  an  Enterprise 

Variables  Encountered 13 

Investigation  Required 13 

Expert  Investigation 14 

Findings 15 

Recommendations 15 

Engineering  Report 15 

Patent  Situation 16 

Investigation  of  the  Commercial  Field 18 

Findings  of  a  Commercial  Nature 19 

The  Result  Sought 20 

^   Chapter  III.     Competent  Management 

Growth  of  an  Organization 21 

Departments  and  Specialized  Duties 21 

Managerial  Positions 22 

Organization  Building 23 

Building  from  the  Top  Down 24 

Sales 25 

The  Directorate 26 

Choosing  an  Executive  Committee 27 

Functions  of  the  Management 27 


V 


447466 


4  Table   of  Contents 

Chapter  IV.     Raising  Capital  Pa^e 

Mow  Secure  Funds? 28 

Three  Essential  Elements 28 

What  Constitutes  a  Banking  Proposition? 29 

A|)i)roaching  the  Right  House 30 

Securities  Adapted  to  Prospective  Purchasers 31 

Requirements  of  the  Business 32 

Determining  the  Corporation's  Financial  Structure 32 

Chapter  V.     Variations  in  the  Promotion  Plan 

Public  Utilities 34 

Railroads 35 

Industrials;  Mining  and  Oil  Property 35 

Consolidation 37 

Present  Attitude  Toward  Consolidations 37 

Chapter  VI.     Work  of  the  Promoter 

Three  Essential  Steps 38 

Inventors  and  Promoters 38 

What  the  Promoter  Ensures 39 

Assembling  the  Proposition 40 

"Selling"  the  Financial  Interests 41 

Patents  and  Patent  Protection 41 

Promoter's  Use  of  Options 42 

Initial  F'inancing 42 

Whom  to  Interest 43 

Over  vs.  Under  Financing         43 

Guarding  Expenditures 44 

What  the  Promoter  Does 45 

Justification  for  Promoter's  Profit 46 

Test  Questions 

Answers  to  Starred  Questions 

Key  Problem 


CHAPTER   I 
ESSENTIALS   OF  A   BUSINESS   ENTERPRISE 

''There  is  nothing  that  the  world  admires  so  much  as 
brains.  The  man  without  brains,  and  with  money,  cannot 
keep  the  money.  The  man  with  brains,  and  without  money, 
can  soon  get  the  money,  if  he  chooses  to  go  after  it  hard 
enough.'"  —  Charles  M.  Schwab, 

Chairman  of  the  Board,  Bethlehem  Steel  Corporation. 

Development  of  New  Enterprises 

There  is  in  this  relatively  new  and  expanding  country  a 
very  large  number  of  openings  for  the  establishment  of  a  busi- 
ness. Men  of  imagination,  energy  and  the  courage  of  their  con- 
victions find  opportunities  seemingly  without  limit.  While 
much  has  been  said  of  the  fabled  wealth  of  Galconda,  enter- 
prising business  leaders  of  America  surpass  it  by  far  in  their 
matter-of-fact  corporation  statements  and  balance  sheets. 

These  opportunities,  in  far  greater  degree  than  usually  is 
considered,  are  within  the  reach  of  every  one.  Their  successful 
exploitation  depends  almost  entirely  upon  the  ability  of  the  in- 
dividual to  grasp  the  principal  features  of  his  undertaking  and 
hew  unrelentingly  to  the  line  mapped  out.  The  greatest  enemy 
to  business  success  is  lack  of  sustained  enthusiasm  over  the 
difficult  and  prolonged  period  when  discouragement  and  falter- 
ing confidence  creep  in  to  induce  relaxation  of  effort.  Those 
enterprises  which  have  shown  the  least  promise  in  their  initial 
stages  and  have  had  the  most  difficult  beginnings  have  —  due 
to  the  energy  and  persistency  of  their  sponsors  —  often  made 
our  greatest  commercial  successes.  Courage,  enthusiasm  and 
unfaltering  confidence  in  self  are  the  keystones  upon  which 
those  who  would  launch  an  enterprise  must  build. 


6  La  i(  }i  c  h  i  u  ^   a    N  cw  E  n  te  r  pr  i  s  e 

The  Personal  Equation 

The  character  of  a  business  in  which  a  man  engages  is  naturally 
limited  largely  to  his  temperament  and  quality  of  imagination. 
What  it  becomes,  however,  is  the  result  of  individual  charac- 
teristics and  tendencies.  A  shoe  business  may  be  confined  to 
one  store  in  a  dark  alley,  from  which  the  owner  is  able  to  eke 
but  a  meagre  living,  or  it  may  become  a  national  institution 
such  as  the  W.  L.  Douglas  Shoe  Company.  Douglas  could 
have  remained  a  cobbler  all  his  life,  but  his  imagination  and  his 
energy  carried  him  forward  to  the  establishment  of  a  great  cor- 
poration, not  only  manufacturing  shoes  but  selling  them  through 
its  own  stores. 

Woolworth  could  have  lived  and  died  in  Lancaster  a  hopeless 
bankrupt  and  his  great  idea  of  a  chain  of  five  and  ten  cent  stores 
remained  locked  in  his  own  breast,  but  despite  failures  and  ob- 
stacles his  spirit  carried  him  forward  to  a  success  seldom  equaled 
in  any  business.  Hence  we  can  see  that  the  possibilities  for 
establishing  businesses  are  limited  only  by  the  capabilities  of 
the  individual  himself. 

Profits,  the  Business  Man's  Test 

What  has  been  said,  while  essentially  true  and  demonstrated 
so  in  career  after  career,  must  not  be  permitted  to  obscure 
certain  facts  which  though  somewhat  less  pleasant  to  contem- 
plate are  none  the  less  important.  What  represents  the  test 
of  a  successful  enterprise? 

The  answer  is  "profits."  But  what  are  profits?  It  would 
seem  this  question  would  require  no  answer,  but  experience  dis- 
closes that  even  among  big  business  men  there  is  a  tendency  to 
consider  a  business  a  profitable  enterprise  which  shows  any  sort 
of  earning.  Hence,  it  should  be  definitely  understood  that 
profits  is  the  sum  remaining  after  deducting  from  the  gross 
income  the  total  amount  of  expenditures  necessary  to  the  con- 
duct of  a  business.  This  includes  every  item  spent  from  the 
company's  treasury.  This  is  a  point  which  is  often  confused  so 
long  as  the  gross  sales  exceed  the  gross  expenditures.    There  are 


Essentials  of  a  Business  Enterprise      7 

many  items,  however,  which  must  be  charged  against  expendi- 
tures even  though  they  do  not  represent  money  actually  paid 
out.  When  this  is  considered  many  companies  ostensibly 
making  profits  would  be  found  actually  to  be  operating  at  a 
loss. 

What  are  the  Potential  Profits? 

"What  are  my  potential  profits?"  thus  becomes  the  most 
vital  of  all  questions  to  the  man  who  contemplates  launching 
an  enterprise.  If  he  cannot  answer  this  question,  how  is  he  to 
know  what  his  project  is  worth  as  an  investment?  Does  he 
know  whether  there  is  an  actual  commercial  demand  for  his 
new  product,  or  whether  such  demand  could  be  created?  What 
planned  methods  of  development  have  been  adopted  to  insure 
the  shortest  route  to  quantity  production  and  the  market  with 
the  least  outlay  of  time  and  money?  Are  plans  made  for  stand- 
ardization and  interchangeability  of  parts.  Incidentally,  what 
knowledge  has  one  concerning  prior  patents  covering  the  basic 
plans  of  his  machine  or  device? 

Unless  these,  and  similar  questions,  can  be  answered,  upon 
what  basis  is  the  person  judging  the  financial  expenditures  he 
proposes  to  make  on  development?  All  these  questions  should, 
in  fact,  be  answered  with  reasonable  definiteness,  so  that  the 
financial  expenditures  are  surrounded  with  less  risk  and  the 
highly  profitable  enterprise  expected  may  in  reality  develop. 

Essentials  to  Consider 

Very  fortunately,  there  are  specific  principles  and  measures 
which,  when  employed  correctly,  enable  the  business  man  to  test 
a  proposed  enterprise  in  the  way  just  suggested,  and,  if  satisfied 
with  the  result,  to  proceed  with  increased  certainty.  The  prin- 
ciples underlying  all  business  undertakings  are  essentially  the 
same.  They  may  vary  as  to  form,  according  to  the  character 
of  the  business  to  be  undertaken,  but  rarely  as  to  method. 

Occasionally  an  enterprise  is  encountered  in  which  the  main 
factors  have  been  so  submerged  beneath  a  multitude  of  details 


8  L II  II }}  c  h  i  n  g   a    New  Enterprise 

as  to  be  barely  recognizable.  This  is  usually  due  to  the  fact 
that  in  the  beginning  its  sponsors  have  failed  to  determine  upon 
a  fixed  method  of  operation  and  it  will  generally  be  found  that 
in  direct  ratio  to  the  number  of  details  with  which  the  operation 
of  the  business  is  burdened,  confusion  as  to  the  company's 
purpose  reigns  in  the  mind  of  its  leaders.  It  is  thus  essential 
first  of  all,  when  considering  the  launching  of  an  enterprise,  to 
look  carefully  into  the  nature  of  the  business  which  it  is  proposed 
to  undertake.  It  can  be  safely  said  that  nine-tenths  of  the 
business  evils  of  today  are  due  to  haste  and  immature  consider- 
ation in  getting  a  business  under  way.  Men  meet,  discuss  what 
they  consider  an  attractive  possibility  for  a  profitable  enter- 
prise and  before  one  can  say  "Jack  Robinson"  they  are  in  busi- 
ness. It  is  then  their  troubles  begin.  Since  our  aim  is  not 
merely  to  avoid  these  troubles  but  to  build  solidly,  and  with 
profit,  let  us  raise  this  fundamental  inquiry,  What  are  the  essen- 
tial factors  in  a  business  enterprise? 

What  are  the  Essential  Factors? 

The  viewpoint  with  which  we  approach  this  question,  is 
important.  It  ought  to  be  considered,  before  dissecting  a 
business  into  its  essential  factors,  that  the  basis  upon  which  a 
permanently  stable  and  profitable  business  rests  is  after  all  its 
good-will.  A  good-will  in  any  business  cannot  be  built  up  with- 
out a  thorough  understanding  of  its  sponsors  of  their  moral 
responsibility  to  themselves,  their  business,  their  competitors 
and  the  community  as  a  whole. 

A  business  can  only  prosper  in  direct  ratio  to  its  qualities 
of  inherent  excellence,  either  in  its  products  or  in  its  business 
dealings  generally.  There  should  be  no  seeking  of  advantage 
by  ulterior  acts,  or  efforts  "to  put  it  over"  their  competitors  or 
customers  in  any  way  but  by  fair  and  honorable  dealing.  The 
effort  should  be  always  to  build  a  substantial  good-will  and  repu- 
tation for  a  business.  Enterprises  founded  on  such  principles 
will  stand  when  others,  for  a  time  being  more  prosperous,  perhaps, 
fall. 


Essentials   of  a  Business  Enterprise    9 

With  this  in  mind,  the  essentials  of  an  enterprise  are  briefly: 

1.  The  undertaking  itself. 

2.  The  management. 

3.  The  finances. 

The  Undertaking  Itself 

In  considering  an  undertaking,  its  selection  depends  almost 
entirely  upon  the  adaptability  of  the  parties  interested.  We 
often  hear  people  speak  of  the  things  they  like  best  —  the  same 
applies  to  a  business.  An  enterprise  so  initiated  begins  with 
the  first  essential  of  success,  because  the  work  entailed  becomes 
play  to  those  interested; 

1.  They  like,  to  an  extreme  degree,  the  work  they  are  assum- 
ing. 

2.  They  usually  know  the  subject  thoroughly. 

Because  of  these  tendencies  many  propositions  which  were 
but  paper  plans  have  developed  to  gigantic  institutions.  We 
have  examples  of  this  in  the  International  Correspondence 
School,  the  Alexander  Hamilton  Institute,  the  American  Surety 
Company,  The  Postal  Life  Insurance  Company  and  the  Bethle- 
hem Steel  Corporation. 

In  the  case  of  the  last  named,  the  Bethlehem  Steel  Company, 
when  Charles  M.  Schwab  took  hold  of  it,  was  but  the  shell  of  a 
manufacturing  plant.  What  it  is  today  needs  no  explanation. 
It  was  Schwab's  imagination,  initiative,  joy  in  the  work  and 
faith  in  himself  coupled  with  a  full  knowledge  of  the  necessities 
of  the  business  that  carried  it  through.  We  could  mention 
hundreds  of  other  great  enterprises  in  which  the  spirit  and  love 
of  the  work  made  of  them  the  concerns  they  are  today. 

The  first  essential  of  an  enterprise  then  is  the  idea  and  the 
driving  force  back  of  it.  Armed  with  these  two,  seemingly  im- 
penetrable fetters  of  organization  difficulties  may  be  overcome. 

Management 

No  results  of  a  profitable  nature,  however,  can  be  expected 
even  when  energy  and  faith  stand  at  the  helm  of  an  enterprise 


10  La  u  u  ching   a    New  Enterprise 

unless  its  performance  is  based  on  sequential  management.  In 
other  words,  management  is  the  keynote  of  success  in  business. 
Too  much  stress  cannot  be  laid  on  thi^  point.  Unless  an 
organization  is  so  linked  up  in  its  sequential  operations  or  acts 
that  the  result  is  not  only  a  good  one  but  a  profitable  one,  it 
cannot  be  a  success. 

Management  is,  in  the  simplest  form  of  its  definition,  the 
operating  of  the  various  departments  under  responsible  heads 
who  so  correlate  their  efforts  with  final  responsibility  to  a  chief 
executive  that  the  sum  total  of  effectiveness  is  balanced  and 
constantly  progressive  in  the  good-will  of  the  business. 


Finances 

A  business  usually  is  the  result  of  some  one's  initiation  whose 
mind  is  seeking  that  form  of  undertaking  which  by  every  form 
of  estimate  will  yield  the  largest  profit.  When  a  plan  is  finally 
devised  every  one  is  willing  to  go  into  it  and  work  out  its  every 
detail,  but  few  are  willing  to  undertake  the  responsibility  for 
financing.  As  a  result  of  this  attitude,  to  use  the  vernacular, 
of  "letting  George  do  it,"  it  is  not  long  after  its  launching  that 
the  business  finds  itself  in  need  of  funds.  George  had  done 
it  —  perhaps  to  the  best  of  his  ability  —  but  for  lack  of  co- 
operation in  this  most  important  detail  he  has  not  done  enough 
of  it.  Instead  of  figuring  how  much  was  actually  needed,  the 
system  has  perhaps  been,  how  much  the  business  could  get 
along  without. 

When  this  difficulty  is  met  the  managers  of  the  enterprise 
usually  exclaim  that  a  good  business  is  going  down  because  of 
the  lack  of  money  and  the  investors  begin  to  inquire  how  good 
the  business  really  was  from  the  start. 

That  money  will  be  required  to  sustain  the  new  enterprise 
before  it  reaches  a  paying  basis,  is  a  fact  which  ought  to  be 
recognized  candidly  at  the  start.  And  the  means  for  securing  it 
ha\c  to  be  provided  if  there  is  to  be  assurance  of  ultimate  profit- 
able success. 


Essentials  of  a  Business  Enterprise     11 

Starting  Under  Favorable  Conditions 

Each  of  the  foregoing  factors,  undertaking,  management 
and  finances,  has  an  ecjually  important  position  in  the  field  of 
business  or  industry.  None  can  stand  alone  without  the  other 
two.  From  an  investor's  point  of  view  —  in  this  regard  is 
meant  an  individual  contemplating  investment  in  an  enterprise 
already  operating  but  seeking  additional  capital  — •  the  manage- 
ment should  receive  the  closest  scrutiny.  From  the  point  of 
view  of  the  sponsors  of  an  enterprise,  the  field  for  its  activities 
and  methods  of  bringing  their  prospective  company  to  success 
should  receive  first  consideration.  These  factors,  however,  are 
usually  thought  of  too  late.  Financing,  usually  thought  of  first, 
should  be  preceded  by  an  investigation  of  the  other  two  factors. 

With  the  idea  of  building  up  good-will  as  an  underlying  con- 
sideration, we  may  conclude,  and  with  a  clear  cut  view  of  1, 
undertaking;  2,  management;  and  3,  finances  as  the  three  ele- 
ments which  must  be  dealt  with  and  co-ordinated  in  the  pro- 
posed enterprise,  those  responsible  for  its  ultimate  results  are 
fairly  embarked  upon  their  project. 

One  of  those  associated  with  the  enterprise  should  have  a 
thorough  understanding  and  knowledge  of  the  line  of  business, 
its  product,  its  field  and  methods  of  operation.  Another  should 
be  thoroughly  informed  on  the  subject  of  finances.  And  it  is 
desirable  that  another  should  be  widely  experienced  in  sales 
and  sales  methods  and  markets.  No  allowance  is  made  here,  of 
course,  for  those  foolish  individuals  who  attempt  a  business  of 
which  they  know  nothing,  because  it  is  seldom  that  they  remain 
in  it  very  long  anyway,  but  with  the  above  point  thoroughly 
understood,  and  with  its  sponsors  endowed  with  vision,  tenacity 
and  purpose  —  a  vision  that  sees  beyond  the  difficulties  and  ob- 
stacles of  the  moment  to  the  golden  opportunities  beyond,  and  a 
tenacity  to  follow  that  vision  despite  all  drawbacks,  to  the  purpose 
in  view — a  business  so  established  bears  every  likelihood  of  success. 

What  Steps  to  Take 

What  has  been  said  so  far  outlines  the  problem  with  which 
we  are  faced  and  the  methods  in  general  for  dealing  with  it. 


12  Launching   a    New  Enterprise 

Tlic  chapters  \vliich    follow  deal   with    these   topics   in  greater 
detail: 

1.  The  Enterprise. 

How  test  its  soundness? 
What  elements  should  be  scrutinized? 
What  are  the  most  feasible  methods  of  investigation? 
How  secure,  and  use  properly,  the  expert's  resources? 
What  safeguards  should  be  employed   to  protect  the 
new  enterprise? 

2.  The  Management. 

What  offices  should  be  provided  for? 
W'hat  duties  pertain  to  each  office? 
How  should  an  organization  be  built? 
What  special  difficulties  are  commonly  encountered  in 
organizing  a  new  enterprise? 

3.  The  Finances. 

How  much  money  will  be  required  and  when? 

What  represents  a  suitable  financial  structure  for  se- 
curing this  money? 

Which  methods  in  selling  securities  ought  to  be  adopted? 

What  special  methods  of  handling  the  finances  need  to 
be  followed  at  first  especially? 


CHAPTER   II 
TESTING  THE  SOUNDNESS  OF  AN   ENTERPRISE 

Variables  Encountered 

When  a  new  enterprise  is  proposed,  its  backer  can  expect  to 
meet  first  of  all  this  question,  Will  it  pay?  Should  others  not 
raise  this  question,  he  should  put  it  to  himself,  nevertheless, 
fully  as  insistently.  What  is  wanted,  in  other  words,  is  an 
accurate  estimate  of  the  possibilities  of  profit  in  advance  of  the 
project's  full  development  —  or  non-development,  as  the  case 
may  be. 

There  exists  in  every  new  project,  both  because  of  its  newness 
and  the  always  more  or  less  changing  nature  of  business  itself, 
certain  variables  or  elements  whose  operations  only  later  will 
become  evident.  Were  the  enterprise  proposed  a  brick  making 
plant,  for  instance,  these  variables  would  in  all  probability  be 
few  in  number  and  relatively  unimportant.  Were  the  enter- 
prise, however,  to  have  for  its  basic  commodity  an  inventive 
product  or  a  new  product  of  any  nature,  especially  in  the  mechan- 
ical, electrical  or  chemical  field,  variables  of  the  most  intricate 
nature  are  likely  to  be  encountered.  These  variables,  by  their 
presence  or  relative  absence,  determine  in  large  measure  the 
extent  of  the  investigation  required  in  determining  the  sound- 
ness of  the  project  at  hand. 

Investigation  Required 

It  is  possible  that,  so  well  is  the  proposed  enterprise  under- 
stood by  those  who  conceived  it,  that  a  brief  examination  of 
conditions  and  a  few  hours  figuring  over  costs,  markets,  initial 
capital,  etc.,  are  sufficient.  Whatever  further  investigation 
occurs  is  primarily  for  assembling  data  with  which  to  impress 
the  possible  financial  backer,  than  with  a  view  to  rendering  the 


14  La  a  u  ching   a    New  Enterprise 

project  less  risky.  But  this  is  rather  the  exception,  than  the 
rule,  with  new  enterprises  today. 

The  attention  of  business  men  are  drawn  very  largely  at 
present  into  the  field  of  industrial  manufacture,  in  which  the 
variables  encountered  are  numerous  and  complex.  Due  to 
this  situation,  this  field  abounds  in  pitfalls,  into  w^hich  thousands 
of  apparently  promising  ventures  have  fallen.  Hundreds  of 
millions  of  dollars  are  being  wasted  annually  through  ill-con- 
sidered participation  in  undertakings  of  this  nature. 

Expert  Investigation 

An  inventor  not  long  since  brought  into  being  a  multiplying 
machine,  which  appeared  to  possess  merit.  While  the  matter 
was  still  in  the  incipient  stage,  the  possibilities  of  the  machine 
were  examined  by  an  engineering  firm,  which  specialized  in  the 
investigation  and  development  of  mechanical  devices.  The 
report  of  this  firm  will  be  presented  here,  since  it  covers  prac- 
tically every  phase  which  enters  into  an  expert  investigation, 
preliminary  to  attempting  to  place  a  new  device  on  the  market. 
The  writer  has  omitted  those  portions  of  the  report  which  he 
considers  are  not  needed  to  make  the  whole  situation,  and  the 
methods  employed,  perfectly  clear  to  the  reader. 

REPORT  ON   BACON   MULTIPLYING   MACHINE 

June  29,  1917. 
Mr.  George  M.  Bacon, 
Salt  Lake  City,  Utah, 

Dear  Sir: 

Your  instructions  under  date  of  March  22,  1917,  requested  that  we  assume 
for  a  period  of  one  year  the  management  of  your  problem,  a  "direct  multiply- 
ing machine"  —  patent  application  in  U.  S.  Patent  Office,  Serial  No. , 

dated  Nov.  — ,  1916,  for  which  you  supplied  us  with  plans,  specifications  and 
other  information  of  a  technical  nature. 

To  arrive  properly  at  definite  conclusions,  we  have  proceeded  to  carry 
out  our  investigation  and  recommendations  along  the  following  lines: 

1.  Analysis  of  the  initial  plans  submitted. 

2.  Preliminary  patent  investigation. 

3.  Investigation  of  the  commercial  field. 


Soundness   of  an  Enterprise  15 

4.  Model  making. 

5.  Manufacture  of  tools. 

6.  Manufacture  of  finished  machines. 

7.  Marketing. 

The  problem  submitted  to  us  for  analysis  is  one  where  we  had  to  make 
certain  of  the  first  three  steps  before  you  could  be  advised  to  proceed  safely 
and  properly  with  the  expenditures  involved  in  development  work. 

We  have  fully  stated  our  recommendations  at  the  close  of  this  report. 

Findings : 

Our  general  findings  are: 

1.  That  mechanically  the  device  is  new  in  its  plan  of  construction. 

2.  That  from  the  preliminary  examination  of  the  prior  art,  it  stands  alone 

from  a  patent  law  point  of  view. 
3.     That  the  commercial  investigation  fully  brings  out  the  fact  that  no 
direct  multiplying  machine  has  been  built  or  placed  on  the  market, 
and  that  there  is  a  demand  for  a  small  and  a  large  listing  machine 
of  this  type. 

Recommendations : 

Our  general  recommendation  is: 

That  a  small  three-place  direct  multiplying  machine  be  redesigned  and 
built  to  include  all  such  features  as  are  found  necessary  to  render  the  machine 
operative  in  accordance  with  the  principle  laid  out  in  the  invention. 

During  the  period  of  three  months,  from  March  25th  to  June  25th,  1917, 
we  have  been  able  to  cover  the  following: 

(a)  Study  of  the  initial  plans  —  or  engineering  report. 

(b)  Preliminary  patent  investigation. 

(c)  Investigation  of  the  commercial  field. 

This  work  was  carried  out  by  four  departments  of  this  concern;  and  at 
least  one  hundred  individuals  and  heads  of  concerns,  in  some  way  identified 
with  computing  machine  devices,  have  been  interviewed. 

Engineering  Report: 

In  examining  the  preliminary  data  submitted  we  have  divided  the  work 
into  two  parts: 

1.  An  analysis  to  determine  whether  the  machine  as  originally  designed 

would  perform  its  functions. 

2.  An  analysis  to  determine  what  changes,  if  any,  would  have  to  be  made 

to  bring  about  a  perfect  functioning  in  the  machine. 
Careful   preliminary   study   proves   that   in   principle   the   machine   will 


16  L  a  II  n  c  h  i  n  g   a    New  Enterprise 

perform  its  functions  substantially  as  outlined  by  you,  except  in  two  particu- 
lars, which  would  fail  of  their  objects,  i.e., 

(a)  The  order  in  which  the  multiplicand  and  multiplier  dials  are  set. 

(b)  The  order  in  which  the  multiplicand  and  multiplier  dials  are  reset. 

(Here  follows  the  detailed  report  of  how  these  changes  and 
other  objections  in  the  design  would  be  overcome,  all  of  which  is 
technical  and  unnecessary  to  print  in  order  to  render  the  illus- 
tration plain.  The  engineering  report  is  qualified  by  the  follow- 
ing statements) : 

1.  The  general  arrangement  of  the  mechanism  is  comparatively  simple. 

2.  Regarding  approximate  sizes  of  machine,  it  will  be  necessary  to  enlarge 

diameters  of  differential  wheels  slightly,  as  present  diameter  of  low 
ratio  is  impracticable. 

3.  The  machine  should  be   inclined  at  an  angle  to  facilitate  readings. 

This  would  increase  the  height,  but  the  machine  may  be  considered 
portable  if  limited  to  the  number  of  digits  we  recommend. 

4.  The  principle  of  the  machine  will  permit  of  increasing  the  number  of 

digits  by  additional  differential  units  and  transfer  mechanisms. 

5.  There  do  not  appear  to  be  any  unusual  problems  involved  in  tooling 

for  manufacture. 

6.  At  the  present  time  it  would  be  difficult  to  make  an  estimate  on  cost 

of  production.     This  can  be  done  accurately,  both  as  to  tools  and 
manufacture,  upon  completion  of  final  shop  drawings. 

7.  The  general  design  of  the  machine  is  such  that  the   finished   product 

may  be  made  very  pleasing  in  exterior  appearance. 

8.  The  following  are  among  the  mechanical  difficulties  anticipated: 

(a)  Possibilities  of  excessive  friction. 

(b)  Lost  motion  in  the  intermittent  differential  gears. 

(c)  Possibility  of  overthrow  on  the  product  dials. 

9.  The  machine  is  capable  of  functioning  as  described,  but  discrepancies 

may  be  encountered  which  can  be  determined  only  as  the  develop- 
ment work  and  tests  progress. 

Patent  Situation: 

We  have  studied  carefully  the  reference  cited  in  the  rejection  of  Jan.  — , 
1917,  in  the  matter  of  the  patent  application  Serial  No. — ,  filed  Nov.  — ,  1916, 
with  the  exception  of  the  Vermehren  patent  of  July  10,  1906,  which  in  the 
rejection  is  not  identified  by  a  number  and  no  copy  of  which  patent  accom- 
panied the  papers  submitted  to  us.  We  have,  however,  looked  up  this  patent 
in  the  Patent  Office  Gazette  and  understand  its  relation  to  the  art.  None  of 
the  patents  cited  by  the  Examiner  meets  the  broad  idea  of  Bacon's  invention; 
that  is,  employing  a  plurality  of  Series  of  differential  gears  co-operating  with 


Soundness   of  an  Enterprise  17 

a  corresponding  series  of  pinions  adjustable  radially  to  the  respective  differ- 
ential gears  and  shafts  connected  with  product  dials  adapted  to  be  driven  by 
one  or  more  pinions  to  accumulate  the  product. 

This  arrangement  of  gears  seems  to  be  new  with  Bacon,  for  the  Patent 
Office  has  not  cited  anything  like  it,  and  in  our  examination  of  the  art  on 
multiplying  machines,  we  have  been  unable  to  find  any  patent  showing  a 
machine  operating  in  this  manner.  Vermehren  shows  a  staggered  arrange- 
ment and  interconnected  gear  mechanism  in  his  patent  No.  1,134,169  of 
April  6,  1915  (not  a  reference),  but  in  the  machine  illustrated  in  this  patent  he 
multiplies  by  partial  products  instead  of  full  and  complete  rotation,  as  is 
done  in  the  Bacon  mechanism. 

The  Examiner  is  justified  in  rejecting  most  of  the  claims  1  to  14  of  Bacon, 
in  view  of  the  Heberling  et  al.,  and  Vermehren  patents,  because  these  patents 
show  that  the  use  of  concentrically  arranged  crown  and  spur  gears  correspond- 
ing to  the  differential  gears  (B)  of  Bacon  was  not  new  with  Bacon,  and  there- 
fore he  is  not  entitled  to  claims  covering  the  use  of  such  a  wheel  in  computing 
mechanisms.  In  view,  however,  of  the  fact  that  with  the  exception  of  claims 
24  and  25,  claims  15  to  26  inclusive  are  considered  allowable,  the  staggered 
or  diamond  arrangement  and  the  interconnection  of  the  differential  gears 
seem  to  be  new  with  Bacon. 

In  our  opinion  the  claims  are  too  specific,  and  in  further  prosecution  of 
the  application,  an  effort  should  be  made  to  obtain  broader  claims  on  the 
combinations  of  mechanisms  shown  to  be  essential  to  the  proper  operation  of 
the  Bacon  machine.  The  Examiner  objects  to  the  claims  on  the  ground  of 
multiplicity,  because  the  claims  recite  specifically  some  old  mechanisms. 
For  this  reason  broader  and  more  generic  claims  should  be  inserted. 

The  specification  in  the  Bacon  application  contains  numerous  mistakes 
and  errors  in  description  and  should  be  revised  and  corrected. 

The  question  also  arises  in  connection  with  this  application  of  eliminating 
therefrom  all  references  to  the  zero  resetting  mechanism  of  the  multiplicand 
dials,  because  this  mechanism,  as  shown  and  described,  is  inoperative,  and  if 
this  feature  is  retained,  it  will  result  in  invalidating  all  claims  including  this 
feature  or  claims  relating  thereto. 

An  examination  of  multiplying  machine  patents  and  the  claims  thereof 
fails  to  disclose  any  claims  which  in  our  opinion  would  interfere  with  the  Bacon 
multiplying  mechanism,  or  the  improvements  suggested  in  the  engineers' 
report.  The  Bacon  machine  is  not  a  key  machine,  neither  is  it  handle  or 
power  operated.  For  this  reason  many  of  the  patents  of  modern  commercial 
machines  do  not  contain  claims  pertinent  to  the  Bacon  mechanism. 

So  far  as  we  have  been  able  to  discover,  there  are  no  so-called  "direct" 
multiplying  machines  in  any  way  resembling  the  Bacon  mechanism  on  the 
market  today.  We  have  heard  of  several  said  to  be  direct  multiplying 
machines  under  development,  but  their  principle  of  operation  and  stage  of 
advancement  is  not  known  to  us. 


1 S        L  a  11 11  c  h  i  no   a    New  Enterprise 

Several  patents  have  been  issued  on  machines  having  some  of  the  features 
of  direct  multiplication,  and  we  call  attention  particularly  to  the  following: 

Patent  to  Saunders,  No.  775,939. 

Patent  to  Rosenthal,  No.  1,  168,  745. 

Patent  to  Crumpton,  No.  1,  174,  831. 

Patent  to  Verniehren,  No.  1,  134,  169. 

We  might  mention  several  other  patents  on  multiplying  machines,  but  we 
deem  it  unnecessary  since  they  do  not  involve  mechanism  similar  to  that  of 
Bacon,  and  those  mentioned  illustrate  what  has  been  done. 

Referring  to  paragraph  4  on  the  patent  situation,  an  opinion  was  sub- 
mitted based  upon  Mr.  Bacon's  specifications,  relating  to  the  resetting  of  the 
multiplicand  dials,  said  opinion  being  that  this  mechanism  is  inoperative  and 
ineffective  as  described.  From  our  drawing  "A"  attached,  it  will  be  noted 
that  this  fault  is  obviated. 

The  patent  examination  indicates  that  the  application  would  have  to  be 
redrawn  to  some  extent,  to  cover  broader  generic  claims,  and  also  to  cover 
the  additional  refinements  and  improvements  that  will  be  added  during  the 
process  of  redesigning  the  machine.  A  great  deal  of  refinement  is  necessary, 
but  we  are  convinced  that  ample  ground  work  exists  to  warrant  further 
study  and  development  with  the  view  of  increasing  the  capacity  of  the  machine, 
and  at  the  same  time  keep  within  commercial  limitations.  We  therefore 
recommend  that  no  action  be  taken  by  your  attorneys  until  December  of  this 
year,  the  latest  date  for  submitting  an  application  to  the  Patent  Office  being 
January  — , . 

Investigation  of  the  Commercial  Field 

The  investigation  to  determine  the  commercial  possibihties 
of  the  Bacon  Multiplying  Machine  was  conducted  in  the  follow- 
ing manner: 

1.  By  interviewing  a  large  number  of  adding  machine  com- 

panies and  studying  the  literature  they  publish. 

2.  By  interviewing  all  individuals  whom  it  was  thought  were 

in  any  important  way  connected  with  the  manufacture, 
designing  or  developing  of  "direct"  multiplying  machines. 
(The  names  of  thirty-eight  companies  were  then  listed,  with 
those  which  have  machines  with  multiplying  features  which 
claim  either  direct  or  indirect  multiplication  being  indicated 
by  a  (*).  Three  other  concerns  were  cited  as  claiming  develop- 
ment of  direct  multiplying  machines.  And  the  patent  report 
cites  machines  patented  but  not  yet  built. 


Soundness   of  an  Enterprise  19 

The  report  then  gave  a  general  description  of  the  multiply- 
ing features  of  the  machines  that  multiply,  and  all  significant 
points  in  connection  with  these  machines,  and  those  approaching 
the  direct  multiplier  were  noted. 

Findings  of  a  Commercial  Nature 

1.  That  there  was  merit  in  the  direct  multiplying  machine. 

2.  That  so  far  as  it  was  able  to  find,  there  was  no  so-called 

"direct"  multiplying  machines  in  any  way  resembling 
the  Bacon  mechanism,  on  the  market.  Several  machines 
said  to  be  direct  multipliers  were  found  to  be  under 
development,  but  their  principle  of  operation  and  stage 
of  development  were  unknown. 

3.  That  two   types   of   multiplying   machines   would    be    in 

demand  —  a  small  inexpensive  type  and  a  large  listing 
type. 

4.  That  the  high  cost  of  the  indirect  multiplying  machines 

prohibited  a  large  distribution  of  the  same,  and  that 
for  this  reason  a  moderate  priced  machine  would  find 
a  market. 

5.  That  the  immediate  market  demanded  a  small  machine 

with  five  digits  in  the  multiplier  and  se\'en  in  the  multi- 
plicand. 

6.  That  the  weight  of  the  small  machine  should  not  exceed 

twenty-two  pounds. 

7.  That  it  should  not  cost  more  than  twenty-five  dollars, 

when  made  in  large  quantities. 

8.  That  it  should  sell  for  at  least  one  hundred  dollars,  and 

not  more  than  two  hundred  dollars. 

The  report  closed  with  final  recommendation  that  in  order 
to  avoid  a  large  unnecessary  expenditure,  a  machine  be  designed 
and  built,  having  but  three  places  each  in  the  multiplier  and 
multiplicand  to  prove  the  principle  of  the  invention,  and  in- 
cluding the  mechanical  recommendations,  after  which  a  com- 
plete machine  could  be  built  for  commercial  exhibition. 


20  L  aunchiit  g   a    New  Enterprise 

The  Result  Sought 

Well  organized  technical  investigations,  of  which  the  above 
instance  is  typical,  cover  roughly  these  factors: 

1.  Investigation    to    determine    the    patent    situation    with 

special  reference  to  the  prior  art  in  similar  products  to 
guard  against  all  possibility  of  infringement  that  no 
complications  may  arise  to  interfere  with  the  continued 
operation  of  the  enterprise  once  its  product  is  on  the 
market. 

2.  Thorough  investigation  of  the  product  itself  to  determine 

its  actual  mechanical  worth  and  practicability  and 
ability  to  meet  all  the  claims  made  for  it  as  a  commercial 
commodity. 

3.  Investigation  of  the  market  possibilities  to  ascertain  the 

presence  of  a  demand  for  such  a  product,  or  whether,  if 
an  active  demand  does  not  already  exist,  if  a  demand 
could  be  created. 
The  above  facts  should  all  be  determined  prior  to  any  defi- 
nite steps  being  taken  to  create  an  organization  to  manufacture 
or  market  a  commodity. 

The  tests  which  have  now  been  indicated  represent  means, 
highly  important  as  a  rule  if  the  project  is  to  move  forward  as 
it  should,  for  the  more  accurate  estimation  in  advance  of  the 
possibilities  for  profit  which  exist  in  a  given  undertaking.  As 
such,  inventors,  promoters,  bankers  and  investors  are  coming  to 
place  increasing  dependence  upon  them. 


CHAPTER   III 
COMPETENT   MANAGEMENT 

Growth  of  an  Organization 

While  the  soundness  of  an  enterprise  is  being  tested,  thought 
needs  to  be  given,  at  least  in  a  tentative  way,  to  the  building 
of  an  organization.  Usually,  especially  in  corporations,  the 
management  revolves  around  some  individual  who  from  the 
beginning  has  a  thorough  understanding  of  the  aims  and  business 
of  the  enterprise.  As  the  necessities  require,  governed  largely 
by  the  nature  of  the  company's  activities,  there  is  gathered 
around  him  a  number  of  individuals  who  in  their  turn  should 
have  a  special  knowledge  of  the  various  operations  of  the  busi- 
ness. These  men  are  usually  the  heads  of  departments,  known 
not  only  for  their  ability  in  their  particular  field,  but  possessed 
of  an  ability  to  organize  their  facilities  thoroughly.  As  a  rule, 
this  ability  soon  displays  itself  in  stimulated  activity  and  prog- 
ress of  the  enterprise.  Whenever  a  department  is  headed  by  a 
man  who  is  not  producing  results  personally  that  man  is  not 
fit  for  the  place  or  his  department  is  not  needed  at  all. 

Departments  and  Specialized  Duties 

It  is  a  truism,  however,  that  a  manager  should  manage. 
Therefore,  a  manager  should  so  organize  his  department  as  to 
automatically  care  for  its  routine  activities  without  his  special 
attention,  that  his  own  time  may  be  left  free  for  the  larger  work 
of  creative  effort,  which  finds  its  effect  usually  in  creating  new 
channels  for  enlarged  activity.  If  a  manager  does  not  manage 
and  insists  on  passing  on  the  routine  matters  of  his  department, 
he  becomes  then  merely  a  high-priced  clerk. 

There  was  once  a  $25,000  a  year  manager  who  insisted  on 
seeing  every  single  order  that  came  into  the  house  and  there 


22  L  a  II  u  ch  i  n  g   a    New  Enterprise 

were  ihousancis  of  iheni.  He  was  asked  why  he  wanted  to  make 
a  clerk  of  himself  and  he  said  that  some  of  these  orders  were 
worth  thousands  of  dollars  and  would  need  his  personal  attention. 
The  orders  were  analyzed  and  it  was  found  that  the  average 
order  was  about  $50  and  of  the  exceptional  kind  he  mentioned 
there  were  only  two  or  three  a  week.  Before  he  was  told  these 
facts  the  view  was  expressed  to  him  that  more  really  big 
problems  could  be  found  in  a  week  than  he  could  solve  in  six 
months.     He  found  them  and  is  now  earning  his  $25,000. 

In  another  case  there  was  a  department  entirely  disorganized 
and  the  cause  was  that  the  manager  insisted  upon  handling 
indi\idually  a  lot  of  detail  that  he  could  have  taught  his  clerks 
to  handle.  As  a  clerk  he  was  probably  worth  about  one-quarter 
of  his  salary,  but  as  a  trainer  of  men  he  was  worth  more  than  he 
was  getting  —  provided  he  could  train  others  to  do  his  work. 
Now  that  executive  is  managing,  not  clerking,  and  his  depart- 
ment is  running  smoothly. 

Managerial  Positions 

The  practice  in  establishments  of  any  size  is  to  vest  the  chief 
authority  and  responsibility  for  the  management  of  an  enter- 
prise in  an  executive  usually  known  as  the  president,  chairman, 
or  managing  director,  from  whom  instructions  emanate  and  to 
whom  all  necessary  information  comes.  There  should  be  no 
conflict  of  authority  and  an  intelligent  and  experienced  execu- 
ti\e  makes  his  plans  and  decisions  as  to  the  immediate  and  future 
necessities  of  the  business.  His  is  the  responsibility  for  organ- 
ization. 

The  details  of  a  management  devolve  upon  the  heads  of 
departments  who  are  chosen  by  the  chief  executive.  It  is  here 
in  the  deputization  of  work  to  assistants  that  the  organizing 
ability  and  genius  of  a  chief  executive  is  most  emphatically  dis- 
played. The  author  has  been  told  time  and  again  that  certain 
powerful  heads  of  important  institutions  were  fortunate  because 
of  their  assistants — that  without  them  they  would  have  been 
adrift  upon  an  uncharted  business  sea.      It    was    pointed  out 


Competent   Management  23 

by  the  author,  however,  that  it  was  in  that  fact  alone  that  the 
ability  of  a  chief  executive  was  indicated. 

In  the  administration  of  modern  enterprises,  the  heads  of  the 
important  departments  are  usually  vice-presidents.  This  is  a 
practice  of  comparatively  recent  adoption  but  it  is  my  firm  belief 
that  it  is  to  the  advantage  of  any  organization  to  place  as  vice- 
president  men  whose  responsibility  as  officers  of  the  company 
not  only  increases  their  incentive  but  willingness  to  assume  full 
responsibility  for  their  acts. 

In  a  manufacturing  enterprise  we  would  thus  have: 

1.  A  Vice-President  in  charge  of  production. 

2.  A  Vice-President  in  charge  of  sales. 

3.  A  Vice-President  in  charge  of  purchases. 

If  the  president  is  not  in  charge  of  the  plant,  a  vice-president 
acts  as  general  manager  of  the  factory.  Although  it  is  not  the 
general  practice,  the  position  of  Controller  should  be  consolidated 
with  that  of  Treasurer,  but  because  of  short-sightedness,  the 
position  of  Treasurer  is  usually  parceled  out  to  a  man  of  promi- 
nence, who,  because  of  outside  activities  and  connections,  can 
give  little  but  the  use  of  his  name  to  the  company.  The  same 
procedure  is  often  noticeable  in  the  selection  of  a  president  or 
chairman.  These  practices,  however,  are  slowly  being  elimi- 
nated, and  the  important  positions  in  a  business  organization 
given  to  the  men  actually  engaged  in  the  business  and  who 
rightfully  are  entitled  to  them. 

Organization  Building 

As  a  concrete  specimen  of  the  way  in  which  a  successful 
organization  is  created  we  will  consider  an  actual  case  in  which 
for  the  purpose  in  mind  the  name  is  unessential.  The  plan 
was  for  an  experimental  laboratory  where  the  development  of 
new  devices  could  be  properly  conducted  surrounded  by  all  the 
safeguards  and  knowledge  of  modern  engineering  and  scientific 
facts.  Knowledge  and  concrete  facts  based  on  past  experience 
were  to  be  pre-eminent  points  in  conducting  the  enterprise. 
Therefore,  it  was  necessary  to  base  the  work  on  a  comprehensive 


24  Launching   a    New  Enterprise 

and  intelligently  organized  engineering  department,  and  mechani- 
cal shop  with  compact  but  excellent  equipment,  as  well  as  a 
department  to  sell  the  servdce  in  each  instance. 

The  heads  of  the  major  departments  were  of  paramount 
importance.  It  was  realized  that  the  engineering  department 
could  not  suffice  for  the  service  planned  unless  its  chief  were  a 
man  not  alone  thoroughly  experienced,  but  with  an  understanding 
of  the  aims  of  the  organization.  The  same  applied  to  the 
selection  of  the  chief  of  the  shop  and  the  head  of  sales.  The 
organizer  had  performed  his  function  well  when  he  selected  these 
three  men.  It,  of  course,  remained  for  the  future  to  tell  just 
how  closely  all  these  points  had  been  met.  In  this  particular 
instance  the  selections  proved  fortunate,  for  the  man  who  had 
created  the  organization  found  in  the  three  men  selected  an  un- 
excelled wealth  of  accomplishment,  ambition,  energy  and 
management  ability. 

Around  the  chief  of  the  engineering  department  grew  a  large 
designing  department  wath  as  many  as  sixty  engineering  drafts- 
men, and  a  department  of  research  and  an  estimating  depart- 
ment. Around  the  mechanical  superintendent  grew  a  plant 
that  ultimately  employed  not  the  six  mechanics  originally  en- 
gaged with  proportionate  machinery  equipment,  but  one  that 
employed  some  six  hundred  men  housed  in  a  plant  especially 
erected  at  a  cost  of  half  a  million  dollars. 

Building  from  the  Top  Down 

Any  new  undertaking,  even  though  it  is  intended  from  the 
beginning  to  conduct  the  enterprise  on  a  large  scale,  must  of 
necessity  branch  from  the  heads  of  the  principal  departments. 
In  a  manufacturing  industry  the  heads  are  naturally  the  pro- 
duction man  or  chief  engineer,  as  the  head  of  the  engineering 
department;  the  factory  manager,  in  some  cases  called  factory 
superintendent.  It  is  not  necessary  to  discuss  the  financial 
man  or  the  activities  emanating  from  him,  such  as  the  control  of 
finances  or  the  auditing  department  which  in  some  instances 
conducts  the  cost  control  of  the  manufactured  parts.  When  in- 
dustries are  initiated  by  one  man  he  usually  assumes  the  financial 


Competent   Management  25 

burden  of  the  work  and  it  devolves  on  him  either  to  conduct  this 
work  alone,  with  a  bookkeeping  department,  or  empioy  an  ac- 
countant who  will  develop  a  cost  keeping  department  in  addi- 
tion to  opening  a  proper  set  of  books  to  cover  all  branches  of 
the  business. 

Having  shown  how  a  business  from  its  smallest  beginning 
attains  to  the  magnitude  of  an  enterprise,  the  author  is  content 
to  leave  the  management  in  the  hands  of  the  heads  above  re- 
ferred to  without  showing  how  each  department  is  divided  and 
sub-divided  under  assistants  with  a  proper  relation  to  the  various 
heads  and  all  of  them  under  a  general  manager,  usually  the 
president. 

Sales 

This  is  a  subject  worthy  of  special  statement.  The  increasing 
competition  in  all  lines  of  commercial  activities  and  the  growing 
discrimination  of  the  so-called  "purchasing  public"  in  the 
selection  of  its  purchases  is  a  vital  factor.  In  the  last  analysis 
the  success  of  an  enterprise  is  dependent  largely  upon  its  sales 
department.  Hence  it  should  be  organized  with  the  greatest 
care.  The  head  of  the  sales  department  should  be  a  man  not 
alone  of  great  creative  ability,  but  also  an  organizer.  He 
is  called  upon  to  meet  and  cope  with  problems  not  met  in 
other  divisions  of  business  —  problems  of  influencing  a  public 
to  buy  an  article  for  which,  in  many  instances,  a  ready  demand 
does  not  exist,  hence  he  must  educate  it  to  its  need. 

In  this  latter  regard  advertising  is  playing  a  more  and  more 
important  part.  Hence  advertising  and  sales  usually  can  be 
centralized  under  one  head.  When  not  placed  in  the  hands  of 
one  man  their  activity  should  at  least  be  closely  co-ordinated 
and  work  closely  in  harmony  with  the  balance  of  the  organiza- 
tion. 

The  development  of  modern  sales  methods  has  extended  into 
fields  not  heretofore  considered  susceptible  of  modern  sales 
treatment.  As  an  instance,  who  would  have  conceived  a  few 
years  ago  that  banks  would  maintain  sales  and  publicity 
departments?      What  do  they  sell?     Service  only;   but  it  is  a 


26  /.  (I  u  11  c  Ji  i  11  ii   a    Nc IV  Enterprise 

sen  ice  which  is  being  brought  to  the  attention  of  the  i)ul)lic  in 
clear,  concise  language  and  throiigli  a  high  (jiiahty  of  salesman- 
ship; progressive  banking  institutions  with  new  ideas  and  new 
plans  are  constantly  showing  them  to  the  public  in  a  way  that 
has  pro\en  most  practically  profitable  by  attracting  those  in 
need  of  funtis  for  their  business  to  the  banks  where  they  more 
than  often  stay  as  depositors. 

Organized  sales,  therefore,  must  be  as  far  in  advance  of  old 
time  methods  as  are  the  production  methods  of  today  com])ared 
with  those  of  years  ago.  Business  is  conducted  on  an  extremely 
small  margin  of  profit,  and  the  aim,  therefore,  is  a  larger 
\()lume  of  sales.  In  this  regard,  good-will,  built  up  through 
honest  advertising  of  an  honest  product,  is  most  prolific  of 
])ermanent  success. 

The  Directorate 

The  foregoing  officers  arc  elected  by,  anfl  their  activities  in 
general  are  under  the  supervision  of,  the  directors.  These  di- 
rectors need  not  necessarily  be  investors  in  the  company  with 
which  they  associate  themselves,  but  once  they  become  directors 
they  are  expected  to  supervise  its  operations,  establish  its  poli- 
cies and  pass  upon  the  acts  of  the  officers  periodically,  at  eciual 
intervals.  It  is,  therefore,  advisable  that  the  directors  be  se- 
lected carefully  for  more  reasons  than  one.  First,  because  the 
c|uality  of  the  directorate  establishes  beyond  question  the  calibre 
of  the  enterprise  with  which  their  names  are  associated;  and 
second,  because  it  brings  to  the  conduct  of  the  enterprise 
the  benefit  of  c-xperienced  judgment,  and  hence,  matured 
adxice. 

A  properly  selected  board  of  directors  is  one  of  the  most  im- 
portant assets  with  which  a  firm  can  supply  itself.  It  stops 
discussion  and  inquiry  from  outsiders  who  know  that  men  who 
are  jjrominent  would  not  ally  themselves  with  enterprises  not 
of  the  highest  (luality,  and  that  it  will  live  up  to  the  letter  of 
its  agreement,  and  conduct  its  affairs  on  the  highest  plane  of 
business  ethics. 


C  0  111  p  c  t  c  n  t   M  a  ii  a  g  e  m  ent  27 

Choosing  an  Executive  Committee 

Where  a  board  of  diicclors  is  i)arli(iilarly  larj;t'  aiul  where  its 
members  are  occupied  in  (Hversified  activities,  one  of  the  best 
methods  of  directors'  control  is  to  ai)point  a  small  executive 
committee,  endowed  with  the  authority  of  the  entire  board,  to 
meet  with  the  executives  weekly.  It  is  then  necessary  only  to 
submit  to  the  board  important  matters  where  the  approval  of 
the  entire  board  is  necessary.  At  all  times,  however,  regular 
monthly  reports  of  the  activities  of  the  comi)any  should  be  sub- 
mitted to  the  rest  of  the  board  by  the  president  or  executive 
committee.  These  reports  should  include  not  alone  the  acts 
of  the  company  but  contemplated  acts  requirint;  the  ai)pn)\al 
of  the  board.  This  form  of  management  enables  the  board  to 
judge  of  those  matters  at  its  leisure  and  apart  from  the  hurried 
meetings  of  directors  where  often  matters  of  gravest  impoilaiice 
are  not  given  the  consideration  they  require  or  merit. 

Functions  of  the  Management 

There  exists  in  the  jjrojt'ct  certain  possibilities  of  j^yrofit,  as 
revealed  by  the  tests  already  considered;  the  managenienl  has 
for  its  task  the  making  of  these  potential  profits  real  prolils, 
exhibited  in  the  company's  balancx'  sheet.  When  the  organiza- 
tion is  well  built  and  in  elTective  operation,  the  directors  will 
have  laid  before  Iheni  that  whicli  constitutes  the  ri-al  ti-st  of  a 
management,  the  actual  attainment  in  satisfactory  degree  of 
the  i)rofit  possibilities  open  to  the  enterprise. 


CHAPTER  IV 
RAISING   CAPITAL 

How  Secure  Funds? 

The  enterprise,  in  consequence  of  the  investigation  and  the 
efforts  of  those  responsible  for  its  success,  as  managers  or  other- 
wise, we  assume  in  due  course  reveals  possibilities  of  profit  which 
appear  to  justify  its  financing.     How  shall  these  funds  be  secured? 

The  too  frequent  practice  in  attempting  to  launch  an  enter- 
prise is  to  all  but  ignore  the  other  consideration,  and  to  devote 
attention  at  once  to  this  question  of  how  to  secure  funds. 
The  would-be  promoter  under  these  circumstances  interviews 
one  moneyed  person  after  another,  with  as  a  rule  indifferent 
results.  Were  he  to  continue  undiscouraged  and  ponder  the 
outcome  of  these  various  interviews,  there  would  at  length 
dawn  upon  him  that  his  efforts  to  raise  capital  were  not  prop- 
erly planned.  There  were,  in  other  words,  certain  requirements 
in  the  minds  of  those  upon  whom  he  called,  which  have  to  be 
met  before  the  funds  desired  are  forthcoming. 

Three  Essential  Elements 

Viewing  these  points  in  the  light  of  what  was  said  in  the 
two  preceding  chapters,  it  appears  that  the  man  trying  to  interest 
capital  should  be  prepared  to  discuss  as  convincingly  as  he  may 
these  matters: 

What  are  the  possibilities  of  profit?  Those  who  advance 
funds  do  so  for  the  sake  of  the  returns,  or  income  an- 
ticii)ated,  and  hence  the  size  of  these  returns  represents  a 
matter  of  decided  importance. 
Who  determined  how  the  enterprise  is  to  be  conducted? 
They  want  to  know  who  exercises  control,  whether  this 
control  promises  to  be  wise  or  not,  and  whether  it  could  be 


Raisi 71  g   Capital  29- 

changed    should    the    best    interests    of    their    investment 
warrant. 
What  is  the  risk  encountered?     Though  risk  characterizes 
every  venture,    there   are,    needless   to  say,   variables  of 
greater  number  and  complexities  in  some  enterprises  than 
others;  and  the  question  is  where  this  particular  project 
stands,  relatively  speaking. 
Prospective  suppliers  of  funds,  in  other  words,  when  they 
think  clearly  upon  projects  presented  to  them,  balance  three 
elements;  income,  control  and  risk.     In  view  of  this  situation^ 
to  whom  should  the  appeal  for  funds  be  made? 

What  Constitutes  a  Banking  Proposition? 

The  fact  that  banks  are  the  reservoirs  of  funds  suggests  that 
application  be  made  to  them  in  the  financing  here  considered. 
But  does  this  particular  enterprise  constitute  a  banking  proposi- 
tion? 

There  are  tw^o  kinds  of  banks  represented :  Those  institutions 
which  are  chartered  by  the  several  States  or  by  the  Federal 
Government  and  therefore  under  the  strict  supervision  of  State 
or  Government;  and  private  bankers,  made  up  of  individuals 
who  bring  capital  together  to  create  a  considerable  investing 
amount,  depending  upon  the  nature  of  their  financial  activities. 
The  former  are  permitted  by  their  charters  and  the  banking  laws- 
by  which  they  are  regulated  to  invest  along  only  those  certain 
conservative  channels  which  will  yield  a  commensurate  net 
profit  on  the  public  and  private  moneys  entrusted  to  their  care. 
This  profit  is  derived  from  legal  rates  of  interest  on  loans,  and 
for  this  reason  the  collateral  accepted  must  possess  a  high  degree 
of  safety.  The  earnings  therefore  depend  upon  a  large  turnover 
of  loans  based  upon  large  deposits. 

On  the  other  hand,  while  private  bankers  are  at  liberty  ta 
make  indiscriminate  investments,  reputable  houses  are  most 
careful  in  the  selection  of  their  investments,  particularly  as  they 
do  a  large  amount  of  underwriting  which  is  covered  by  the  funds 
of  their  clients,  the  profit  thereon  coming  in  the  form  of  a  com- 


30  Launching   a    New  Enterprise 

mission  depending  upon  the  hazard  and  the  size  of  the  under- 
writing. Their  very  existence  depends  upon  the  confidence  of 
their  cHents,  both  with  regard  to  the  securities  that  they  market 
and  the  handHng  of  the  capital  entrusted  to  their  management, 
otherwise  it  would  be  impossible  for  them  to  obtain  capital  to 
carry  on  their  business.  Occasional  mistakes  of  judgment  cannot 
be  avoided,  but  even  one  error  of  this  nature  has  sent  to  the  wall 
many  a  firm  which  previously  enjoyed  an  enviable  reputation. 

It  will  be  seen,  therefore,  that  when  the  important  private 
banking  houses  seek  private,  particularly  industrial,  investment, 
it  must  be  of  the  highest  character  both  as  to  safety  and  potential 
profits. 

Approaching  the  Right  House 

Merit  in  a  project  does  not  in  itself  constitute  it  a  banking 
project,  even  though  it  be  completed  to  the  last  stage  of  refine- 
ment. Rumors  often  become  current  that  a  certain  prominent 
banking  house  is  behind  some  particular  invention,  but  it  will 
be  found  upon  proper  inquiry  that  some  individual  connected 
with  such  a  firm  of  bankers  is  doing  the  financing  entirely  on 
his  own  responsibility,  and  independent  of  the  funds  of  his 
concern.  As  a  matter  of  warning,  an  inventor  should  not  consider 
it  appropriate  to  expect  financial  aid  from  such  firms,  nor  should 
an  indi\idual  interested  in  such  banks  permit  any  inference  which 
would  identify  his  own  personal  investments  with  those  of  his 
own  banking  house.  Such  rumors  militate  against  the  standing 
of  these  institutions. 

Upon  the  assumption,  however,  that  the  enterprise  under 
consideration  has  been  in  existence  some  little  time  —  perhaps  a 
partnership  being  incorporated  or  a  consolidation  being  formed 
—  banking  interests  very  properly  should  be  approached.  The 
proposition  should  be  submitted  in  much  this  form,  with  such 
variation  as  would  meet  the  particular  case: 

1.  Monthly  sales  for  previous  two,  three  or  more  years. 

2.  Monthly  expenses  for  corresponding  period. 

3.  Contracts  on  hand. 


Raising   Capital  31 

4.  Balance  sheet  showing  each  year's  condition,  after  deduct- 

ing for  depreciation. 

5.  A  concise  explanation  as  to  exactly  how  the  additional 

capital  which  is  sought  is  to  be  used,  whether  for 
enlargement  of  business  or  to  liquidate  accounts 
payable. 

6.  Present  capitalization  and  bonded  indebtedness. 

7.  Proposed  capitalization  and  bonded  indebtedness. 

Needless  to  say,  an  investment  banking  firm  is  not  interested 
in  every  project  submitted,  even  though  the  soundness  of  the 
same  has  been  in  evidence  through  a  period  of  years.  Speciali- 
zation has  taken  place:  Certain  firms  confine  themselves  to 
railroads,  others  to  public  utilities,  others  to  industrial,  and  still 
others  to  mines  or  oil  enterprises.  Some  will  handle  nothing 
but  bond  issues,  some  will  arrange  for  preferred  stock  issues  as 
well,  and  others  are  open  to  common  stock.  The  reason  for 
these  differences,  and  restrictions  in  the  scope  of  the  firm's 
operations,  lies  in  the  character  of  the  clientele  which  the  particu- 
lar house  wishes  to  cultivate. 

Securities  Adapted  to  Prospective  Purchasers 

The  corporate  form  of  organization,  at  the  same  time,  due 
to  its  flexibility  enables  those  engaged  in  raising  funds  to  appeal 
to  several  groups  of  security  purchasers.  First  mortgage  bonds, 
designed  to  appeal  to  the  investor  or  institutional  purchaser  of 
securities,  can  be  issued  as  a  part  of  the  capitalization.  Con- 
vertible bonds  will  appeal  to  other  purchasers;  preferred  stock 
and  common  stock  likewise  broaden  the  appeal.  What  the 
desires  of  the  investors  and  speculators  are,  have  been  so  fully 
described  in  preceding  Texts  that  the  matter  need  not  be  further 
discussed  here.  Persons  interested  in  securities  are  the  probable 
purchasers,  or  sources  of  funds;  and  when  it  comes  to  the  prepara- 
tion of  the  company's  financial  structure  the  three  factors  — 
income,  control  and  risk -^should  be  adjusted  so  that  the  ap- 
propriate appeal  is  made. 


32  Launching   a    A^ew  Enterprise 

Requirements  of  the  Business 

The  attempt  to  render  securities  attractive  to  investors  and 
speculators  ought  to  be  made  with  due  regard,  at  the  same  time, 
for  the  needs  of  the  enterprise  itself.  Were  bonds  in  undue 
amount  to  be  disposed  of,  for  instance,  fixed  charges  during 
periods  of  depression  or  of  unexpected  difficulties,  would  threaten 
the  company's  solvency.  Were  only  common  stock  issued,  in 
the  case  of  a  well  established  business,  the  cost  of  raising  the 
capital  would  be  more  than  were  bonds  also  issued,  which  here 
would  be  taken  by  investors  at  relatively  high  prices.  What 
elements  are  involved  in  working  out  the  correct  proportion  of 
securities  to  issue,  so  that  the  corporation's  financial  structure 
will  be  effective? 

Determining  the  Corporation's  Financial  Structure 

Income,  control  and  risk,  as  has  been  pointed  out  above,  are 
the  three  essentials;  they  refer  both  to  the  possible  purchaser 
and  the  issuing  corporation,  and  decision  upon  them  in  practice 
represents  skilful  bargaining. 

What  types  of  securities  —  first  lien  bonds,  junior  bonds, 
preferred  stock,  etc.  —  will  likely  appeal  best  to  the  pro- 
spective purchaser  of  this  company's  issues? 
What  represents  the  correct  relation  with  respect  to  these 
different  types  of  securities,  judged  by  the  company's 
assets  and  earning  power? 

Usually  the  result  worked  out  is  a  compromise.  However,  ex- 
perience has  shown  that  the  following  represents  sound  practice : 

Bonds  outstanding  ought  not  to  exceed  50  to  75  per  cent  of 
the  value  (actual)  of  the  company's  fixed  assets;  fixed 
charges  should  fall  comfortably  under  the  company's  assured 
income. 

Preferred  stock  outstanding  (and  income  bonds  and  other 
contingent  obligations)  should  not  be  greater,  and  prefer- 
ably considerably  less,  than  the  value  of  the  fixed  assets 
(actual)  plus  net  current  assets;  contingent  charges  ought 
to  be  well  under  the  income  which  is  reasonably  expected. 


Raisi 71  g   Capital  33 

Common  stock  outstanding  plus  the  foregoing  fixed  and  con- 
tingent obligations  ought  not  to  exceed,  and  preferably 
will  be  under,  the  value  of  the  company's  assets,  tangible 
and  intangible;  dividends  on  the  common  should  at  least 
be  satisfactorily  based  on  the  probable  income,  the  latter 
conservatively  estimated. 
With  this  much  said  of  the  conditions  faced  in  the  preparation 
of  the  financial  plan  and  of  the  factors  involved  in  its  practical 
operation,  let  us  examine  more  specifically  in  the  chapter  which 
follows  the  methods  employed  within  certain  lines  of  industry, 
viz.,  public  utilities,  railroads  and  industrials. 


CHAPTER  V 
VARIATIONS   IN  THE   PROMOTION   PLAN 

Public  Utilities 

Financial  promotion  of  public  utilities  enjoys  an  enviable 
position  among  high  grade  enterprises.  Their  financing  depends, 
of  course,  to  a  large  extent  upon  the  territory  to  be  served.  An 
important  feature,  naturally,  as  in  any  other  undertaking,  is  the 
character  of  the  management,  which  is  regarded  by  financial 
houses  as  well  as  the  investing  public  as  an  important  feature 
as  it  determines  in  a  large  measure  its  further  future  possibilities 
for  success. 

An  experienced  analyst  would,  of  course,  be  retained  to  set 
up  an  estimate  of  anticipated  earnings.  If  a  gas,  electric  light  or 
power  plant  is  to  be  organized  at  a  specific  location  the  following 
factors  would  be  considered  as  indicative  of  its  possibilities  in 
this  regard: 

1.  The  cities  to  be  served  and  their  respective  location. 

2.  Possibilities  for  their  future  growth.     This  would  be  de- 

termined in  a  large  measure  by  transportation  facilities. 
The  normal  growth  expected  can  be  approximated  by 
recording  and  averaging  the  statistics  covering  a  period 
of  years. 

3.  Other  local  conditions  bearing  on  cost  of  operation  de- 

pending on  primary  source  of  power  whether  water  or 
steam. 

With  data  obtained  as  a  result  of  their  investigation,  ex- 
perienced engineers  could  then  obtain  a  set  of  figures  which  would 
aid  the  promoter  in  establishing  the  feasibility  of  the  promotion 
of  such  an  enterprise. 


Variatio7is   in   the    Promotion    Plan     35 

Railroads 

The  promotion  and  financing  of  railroad  public  utilities  have 
become  a  comparatively  simple  operation.  Years  ago  both 
passed  from  the  realm  of  speculation  and  are  now  looked  upon  as 
prime  investment  property.  In  the  early  days  of  both,  however, 
they  occupied  in  the  public  mind  about  the  same  position  as  is 
held  today  by  investment  in  industrials,  oils  and  mine  property. 
Such  investment  is  usually  considered  speculative  in  nature. 
The  utility  field  has  been  reduced  to  one  of  standard  facts  and 
statistics,  however,  which  permit  of  accurate  valuation  of  prop- 
erty and  good-will  clearly  indicating  the  earnings  to  be  expected 
from  the  time  promotion  and  financing  is  begun. 

In  the  promotion  and  financing  of  railroad  property,  prac- 
tically the  same  form  and  method  of  investigation  is  made  prior 
to  launching,  as  for  utilities.  The  field  in  both  is  highly  special- 
ized, however,  and  calls  for  specific  treatment.  While  it  is  true 
both  serve  the  public,  it  is  in  a  somewhat  different  sense.  One 
is  a  carrier  and  all  conditions  of  transportation,  both  of  passenger 
and  freight  traffic,  must  be  taken  into  account.  The  various 
Interstate  laws  are  also  an  important  consideration.  The  other 
serves  homes  and  factories,  supplying  light  and  motive  power 
to  our  industries  but  are  subject,  however,  only  to  local  ordi- 
nances and  local  conditions. 

Industrials;   Mining  and  Oil  Property 

The  promotion  of  industrials,  especially  in  mining  or  oil 
property,  presents  an  entirely  different  aspect  from  the  foregoing. 
The  possible  evaluation  of  such  projects  can  be  controlled  only 
by  the  individual  imagination.  Even  experts,  armed  with 
knowledge,  experience  and  statistics,  cannot  fathom  the  secrets 
of  the  earth  since  an  approximation  of  value  is  merely  a  question 
of  judgment  based  on  experience  and  data  at  their  command  on 
the  geology  of  the  territory  in  which  the  project  is  to  be  located. 
If  it  is  a  subject  for  investment  one  can  depend  only  on  the  in- 
dividual sponsoring  the  property. 

The  financing  of  oil  or  mineral  property  therefore,  is  a  rather 


36  La  11 11  chin  g   a    New  Enterprise 

difficult  proposition.  It  is  usually  done  through  direct  appeal 
to  the  public,  or  to  brokerage  houses  who  arrange  the  under- 
writing. In  any  ev^ent,  the  public  is  soon  asked  to  participate. 
The  path  of  such  an  enterprise,  however,  is  eased  materi- 
ally by  participation  in  its  development  by  a  known  group  of 
men. 

As  an  instance,  the  author  knows  of  two  distinct  oil  companies, 
both  having  started  in  the  same  way  in  the  purchase  of  leases  in 
respective  oil  regions.  Both  were  managed  on  a  most  economic 
basis,  no  salaries  being  paid  to  any  officers,  and  both  having 
approximately  the  same  quality  of  territory.  One  of  these  com- 
panies has  as  its  head  an  oil  executive  of  prominence  and  ex- 
perience, whose  family  were  identified  in  former  years  with  the 
Standard  Oil  Company. 

This  fact  alone,  coupled  of  course  with  his  knowledge  of  the 
management  of  oil  property,  made  it  extremely  easy  to  raise 
money  by  subscription.  In  fact,  it  took  but  a  few  days  to  raise 
half  a  million  dollars  by  offering  approximately  one-seventh  of 
the  company's  authorized  capital.  The  other  company,  while 
ha\ing  a  most  honorable  group  of  men  conduct  its  affairs,  did 
not  prosper  so  easily.  None  of  these  men  were  oil  men  and,  in 
spite  of  the  fact  that  their  properties  were  double  the  extent  of 
the  other  company  and  located  in  about  as  promising  and  proven 
territory,  their  efforts  to  raise  the  necessary  funds  for  the  de- 
velopment of  their  properties  have  met  a  difficult  and  struggling 
career. 

There  are  few  brokers,  too,  who  would  handle  such  securities 
on  any  but  a  large  percentage  basis,  principally  because  they 
are  forced  to  pay  high  selling  costs  in  placing  such  securities 
before  the  public.  A  large  share,  too,  must  go  to  themselves. 
As  much  as  sixty  per  cent  is  frequently  asked  for  the  financing  of 
oil  or  mining  property.  While  the  stockholders  must  eventually 
pay  for  the  selling  of  such  securities,  it  is  argued  that  earnings 
are  frequently  so  high  that  the  brokers'  commissions  are  quickly 
made  up  by  profits.  This  argument  is  without  substantial 
basis  as  the  assumption  must  always  be  that  the  enterprise  may 
not  be  successful. 


Variations  in   the    Promotion   Plan     37 

Consolidation 

Many  of  the  largest  promotions  have  been  consolidations  of 
operating  enterprises.  As  a  rule  these  consolidations  are  actu- 
ated by  the  fact  that  by  so  doing  great  economies  can  be 
effected.  As  a  result  of  these  economies  the  sponsors  of  such 
promotions  usually  acquire  large  interest  in  the  management  of 
the  consolidated  enterprises.  Men  have  made  millions  as  a 
result  of  a  single  transaction.  As  an  instance,  in  effecting  the 
consolidation  which  resulted  in  the  United  States  Steel  Corpora- 
tion, J.  P.  Morgan  received  for  his  services  $80,000,000  worth  of 
common  shares. 

There  are  many  times  when  consolidation  is  necessitated  tO' 
effect  economy  in  production,  distribution  and  general  reduction 
of  overhead,  due  to  the  relegation  of  management  to  a  central 
location  rather  than  distributed  among  several.  The  individual 
concerns  represented  in  consolidations  of  this  character  could 
hardly  survive  as  individuals  but  under  one  management  could 
become  both  profitable  and  productive  enterprises. 

Present  Attitude  Toward  Consolidations 

As  a  consequence  of  considerations  such  as  these,  a  good  part 
of  the  odium  usually  attached  to  mergers  of  this  character  has 
disappeared.  Often  times  it  is  possible  to  bring  together  two 
companies,  or  even  more,  where  one  or  the  other  represents  en- 
terprises with  superior  plants  and  facilities  both  in  point  of  loca- 
tion and  equipment,  and  others,  superior  products  lending  them- 
selves readily  to  manufacture  and  sale.  The  profit  accruing  ta 
all  through  these  means  is  readily  discernible. 

The  industrial  and  economic  needs  of  the  country  today  are 
not  so  much  for  more  industries  as  for  more  industries  manufac- 
turing a  greater  number  of  necessary  goods  with  increased 
productivity  and  profit.  As  this  need  becomes  more  clearly 
felt,  in  the  future  we  can  look  for  an  increased  number  of  con- 
solidations. The  effort  of  executives  of  industrial  corporations 
to  effect  this  end  is  already  noticeable  to  a  marked  degree  and 
has  proven  to  be  justifiable  by  the  results  obtained. 


447466 


CHAPTER  VI 

WORK   OF  THE   PROMOTER 

Three  Essential  Steps 

What  has  been  said  in  the  preceding  chapter  indicates  that 
various  matters  must  receive  attention  and  satisfactory  solution 
when  one  undertakes  to  launch  an  enterprise.  Surveying 
broadly  these  matters  now  in  this  concluding  chapter,  into  what 
essential  classes  do  they  fall?  What  are  the  main  things  to  be 
done  from  the  time  when  the  basis  of  a  profitable  business  is 
supposedly  located  until  there  has  been  brought  into  operation 
a  going  concern? 

These  essential  steps  are: 

1.  Investigation  of  the  project. 

2.  Assembling  of  the  proposition. 

3.  Financing  the  enterprise. 

While  these  have  all  been  discussed,  they  will  be  considered 
now  more  specifically  from  the  viewpoint  of  promotion. 

Inventors  and  Promoters 

The  basis  of  the  project  consists  essentially  in  some  idea. 
Perhaps  it  is  the  conception  of  a  new  process,  or  a  new  device, 
or  an  impro\ed  method  of  co-ordinating  several  factories  hitherto 
competing.  However  that  may  be,  this  idea  represents  someone's 
initiation.  Eventually,  let  us  assume,  it  wall  evolve  into  a 
prosperous  business  establishment.  Who  will  see  that  this 
result  does  actually  take  place?  Who  will  secure  the  profit 
when  it  does? 

We  have  current  among  us  colorful  tales  of  men  who  rise 
from  obscurity  to  wealth  through  some  happy  stroke  of  inven- 
tion. And  since  the  inventor  typifies  the  man  of  ideas,  we  may 
look  into  this  matter  more  closely. 


Work   of  the   Promoter  39* 

The  United  States  Patent  Office  has  to  date  issued  more 
than  1,200,000  patents,  and  it  is  quite  safe  to  approximate  that 
not  more  than  ten  per  cent  of  this  vast  number  have  ever  truly 
seen  the  light  of  day.  A  far  smaller  percentage  have  reached 
the  market  as  commercial  successes.  Irrespective  of  the  initial 
expense  connected  with  this  annual  flood  of  patents,  which,  as- 
can  readily  be  seen,  is  enormous  and  for  the  greater  part  lost, 
we  must  consider  the  millions  upon  millions  of  dollars  that  have 
been  and  are  still  being  wasted  upon  the  development  of  these 
abortive  projects. 

The  causes  which  are  to  the  largest  extent  responsible  for 
this  high  percentage  of  failure  are  many,  and  some  of  a  character 
difficult  of  definition.  The  temperament  that  tends  toward 
creative  genius  is  seldom  combined  with  sound  business  judgment 
or  intuition,  while  the  element  of  suspicion  is  frequently  highly 
developed.  This  last  characteristic  has  led  to  unending  loss 
and  disappointment. 

There  is  no  avenue  of  human  activity  more  crowded  with 
men  unconscious  of  the  difficulties  they  must  overcome  to  reach 
their  goal  than  the  tortuous  road  of  the  inventor.  Ignorance,, 
in  fact,  plays  an  astonishingly  large  part,  not  only  in  the  con- 
ception, but  in  the  promotion  of  new  inventions.  The  inventor 
is  often  an  idealistic  dreamer,  unable  to  grasp  the  true  economic 
value  of  his  problem,  and  with  his  eyes  focussed  on  but  one 
phase  of  a  situation,  which  should  be  viewed  from  many  angles. 
Quite  as  fatal  to  his  success  is  a  lack  of  knowledge  of  design,  or 
of  a  thorough  acquaintance  with  the  history  of  devices  kindred, 
to  that  which  he  seeks  to  create. 

What  the  Promoter  Ensures 

The  man  who  conceives  a  project  originally  tends  without 
doubt  towards  the  view  that  he  himself  should  profit  from  it; 
and  naturally  regards  with  some  little  bitterness  the  fact  that 
others  do  in  practice  secure  what  seems  clear  to  him  undue 
profits  at  his  expense.  But  one  has  to  recognize  that  profits, 
are  due  not  to  the  conception  itself  but  to  the  conception 
commercially    available.      Should    he    see    to    this   commercial 


40  L a  U11  c h  i  11  g   a    New  Enterprise 

availability  himself,  his  profits  will  increase;  for  commercial 
availability  represents  the  thing  basically  important,  and 
■\vhoe\er  ensures  it  deserves  to  be  rewarded. 

We  have  described  in  a  previous  chapter  how  projects  are 
tested  for  soundness,  and  have  pointed  out  here  certain  reasons 
why  inventors  do  not,  so  well  as  other  men  often  do,  apply  these 
tests  with  proper  rigor.  This  explains  at  the  same  time  why, 
-with  respect  to  essential  step  No.  1,  investigation  of  the  project, 
there  should  be  what  we  term  a  promoter.  Once  this  promoter, 
whether  an  engineer,  banker,  lawyer  or  business  man,  locates  the 
project  and  undertakes  its  investigation  properly,  its  profit 
possibilities  or  degree  of  commercial  availability  will  tend  to 
"become  established. 


Assembling  the  Proposition 

The  end  toward  which  we  are  working  is  the  establishment 
of  a  going  concern,  and  its  proper  financing  looms  ahead  as  a 
decidedly  important  problem.  But  just  what  is  to  be  financed? 
Were  the  funds  secured,  is  there  assurance  that  those  otherwise 
connected  will  not  back  out?  What  is  to  prevent  the  proposi- 
tion from  slipping  out  of  the  promoter's  hands  into  the  control 
of  those  who  provide  funds,  thus  leaving  him  without  reward  for 
his  effort?  Correct  assembling  of  the  proposition  represents 
the  solution  of  problems  such  as  these. 

The  experience  of  bankers  and  brokers,  is  that  most  projects 
are  laid  before  them  in  such  a  way  that  little  or  nothing  definite 
can  be  made  out  of  them.  Haze  envelops  the  average  proposi- 
tion and  its  would-be  promoter,  as  well.  Extended  interviews 
and  often  an  independent  investigation  are  necessary  before 
these  financiers  are  in  position  to  pass  judgment  upon  it  at  all. 
Since  these  men  are  busy  and,  in  view  of  their  experience  with 
other  projects,  most  of  which  they  reject,  are  inclined  to  view 
with  distrust  the  average  proposition,  it  occurs  that  many  a 
meritorious  undertaking  has  been  refused  because  poorly  pre- 
sented. 


Work   of  the    P r omo\ter  41 

* 'Selling"  the  Financial  Interests 

The  promoter  ought  to  look  upon  his  work,  after  investiga- 
tion has  tested  the  soundness  of  the  project,  as  high  grade 
salesmanship.  Not  all  persons  are  good  "prospects"  when  it 
comes  to  the  raising  of  funds,  but  good  prospects  can,  neverthe- 
less, be  located.  Like  the  skilled  salesman  he  ought  to  be,  the 
promoter  should  approach  these  prospects  with  his  proposition, 
convince  them  that  it  is  to  their  best  interests  to  become  iden- 
tified with  this  proposition  and  that  there  exists  no  other  way 
than  that  which  he  offers  whereby  they  can  become  identified. 
Where  is  he  to  secure  these  "selling  points"? 

The  investigation  itself  provides  considerable  information; 
and  the  promoter  need  only  marshall  it  in  the  proper  order  as  a 
rule  in  order  to  make  use  of  it  with  telling  effect. 

The  plans  devised  for  the  operation  of  the  proposed  enter- 
prise affords  the  promoter  another  excellent  opportunity  to 
convince  those  whom  he  would  interest.  What  arrangements 
have  been  made  for  the  management  of  the  enterprise?  What 
are  the  probable  costs?  Demand?  Marketing  methods?  etc. 
When  it  is  borne  in  mind  that  profits  are  produced  only  by  a 
going  concern,  the  promoter  will  appreciate  the  importance 
of  bringing  forward  evidence  that  the  enterprise  will  "go". 

Patents  and  Patent  Protection 

The  proper  protection  of  the  enterprise  under  consideration, 
is  a  matter  also  of  decided  importance.  Suppose  the  plans  con- 
template the  marketing  of  a  new  device,  only  recently  perfected. 
Here  the  question  of  protection  by  means  of  a  patent  at  once 
occurs. 

A  valuable  invention  often  times  is  lost,  and  all  its  potential 
possibilities  gone  for  naught  through  the  attempt  of  an  inex- 
perienced man  to  prosecute  his  own  patent  claims.  Above  all 
other  considerations  the  inventor  should  understand  that  the 
important  thing  is  not  merely  to  obtain  a  patent  per  se,  but  to 
secure  one  which  will  afford  him  real  protection.  Such  patents 
can   rarely  be  obtained  except  by  persons  who  have   made  a 


42  L  a  n  11  chin  g   a    New  Enter  pr  i  s  e 

professional  study  of  the  patent  question,  and  of  wide  experience 
in  patent  practice.  The  work  is  at  once  technical,  intricate  and 
exceedingly  difficult.  Of  course,  a  commercialized  invention 
may  fail  for  lack  of  merit,  but,  if  successful,  there  will  be  imi- 
tators unless  the  patents  concerned  indicate  that  no  expense  or 
effort  has  been  spared  to  obtain  the  broadest  protection.  Such 
patents  are  less  likely  to  be  infringed,  particularly  if  the  manu- 
facturing investment  required  is  large. 

Promoter's  Use  of  Options 

The  promoter  who  was  attempting  to  organize  an  oil  com- 
pany, let  us  say,  into  which  three  existing  companies  were  to  be 
consolidated  and  new  acreage  secured,  would  have  little  concern 
with  patents.  Those  whom  he  approached  would,  instead, 
expect  him  to  have  options  on  the  various  holdings  under  con- 
sideration. 

The  option  is  a  privilege,  secured  by  consideration,  which 
gives  its  holder  the  right  to  purchase  certain  specified  property 
or  items  of  value  within  a  fixed  period  of  time  at  a  stated  price. 
Should  the  option  not  be  accepted,  it  expires  at  the  end  of  the 
period  specified.  But  should  the  holder  of  the  option  choose  to 
exercise  his  rights,  he  notifies  the  giver  of  the  option  to  that 
effect  and  the  instrument  thereupon  becomes  a  binding  contract. 

Options  when  used  in  promotion  should  be  drawn  so  as  to 
include  the  right  to  assign.  This  enables  the  promoter  to 
transfer  them  directly  to  the  new  corporation  should  he  so  elect. 

Initial  Financing 

Usually  the  promoter  steps  in  when  an  enterprise  is  in  its 
embryonic  stage,  that  is,  when  it  represents  but  the  idea  or 
skeleton  of  an  organization.  It  is  his  duty  to  give  it  form  and 
build  its  financial  structure  in  such  a  way  as  to  make  of  it  an 
operative  enterprise,  capable  of  meeting  all  the  natural  vicissi- 
tudes to  which  all  new  enterprises  are  heir  during  the  initial 
stages  of  their  development  and  growth. 

The  raising  of  money  is  always  a  question  of  first  importance 
especially  when   launching  an  enterprise.     At  such   times  it  is 


Work   of  the    Promoter  43 

impossible  to  obtain  money  from  the  usual  sources  —  banks, 
investment  houses  and  kindred  institutions  —  because  of  the 
fact  that  by  virtue  of  their  position  in  relation  to  the  banking 
law  and  to  the  investing  public  their  activities  must  of  necessity 
be  confined  only  to  channels  of  known  worth  and  reliability  of 
profit,  going  concerns  showing  a  record  of  profits  over  a  period  of 
several  years  in  which  there  is  every  likelihood  for  continued 
successful  operation. 

Whom  to  Interest 

It  is  in  the  obtaining  of  those  who  would  interest  themselves 
financially  that  a  promoter  functions  chiefly.  A  conscientious 
promoter,  however,  would  not  undertake  this  work  until  after 
he  had  exercised  the  most  scrupulous  care  in  determining  the 
exact  value  and  possibilities  for  the  ultimate  success  of  the 
enterprise. 

As  a  rule,  a  promoter  engaged  in  the  promotion  of  legitimate 
enterprises,  meritorious  in  character,  enjoys  the  confidence  of 
substantial  investors.  His  success  depends  entirely  upon  his 
ability  to  influence  capital  and  he  can  only  continue  to  be  success- 
ful so  long  as  his  reputation  for  honorable  dealings  is  maintained. 
As  this  is  the  case,  promoters  rarely  interest  themselves  in  any 
enterprise  that  will  not  stand  the  white  light  of  a  most  rigid 
investigation.  For  this  purpose  he  depends  not  upon  his  own 
judgment,  but  employs  specialists  in  such  work.  If  an  enter- 
prise having  as  its  basis  the  manufacture  of  a  mechanical,  elec- 
trical machine  or  device  or  chemical  process,  he  would  retain  an 
organization  possessing  a  knowledge  and  experience  which 
would  reduce  that  enterprise  to  its  component  factors,  beginning 
with  a  scientific  analysis  of  the  product,  methods  of  production, 
the  markets,  equipment,  plant  and  property,  organization  and 
management.  The  findings  resulting  from  such  an  investiga- 
tion would  prove  the  basis  for  his  participation  in  its  promotion. 

Over  vs.  Under  Financing 

As  a  broad  expression  of  facts,  it  is  far  better  to  be  over- 
financed  than  when  after  a  business  is  well  under  way  to  find 


44  L  a  n  nchin  g   a    New  Enterprise 

one's  self  in  straits  for  funds.  Money  is  comparatively  easy 
to  raise  at  the  outset  of  an  enterprise  because  of  the  enthusiasm 
surrounding  its  organization,  but  when  it  is  necessary  to  raise 
additional  funds  on  an  under-financed  undertaking  it  is  found 
exceedingly  difficult.  Aside  from  the  effect  upon  the  morale  of 
the  business  because  of  the  feeling  of  insecurity  it  is  then  in,  it 
becomes  an  added  burden  upon,  perhaps,  an  already  overharassed 
official  of  the  company  directly  distracting  his  attention  from 
the  work  of  building  his  organization  to  the  worries  and  under- 
taking of  raising  money  and  necessities  of  making  explanations 
to  stockholders  or  others  who  seek  to  know  why  the  money 
supplied  in  the  beginning  has  not  sufficed.  Where  support  is 
looked  for  it  is  usually  found  that  confidence  has  gone  and 
skepticism  taken  its  place. 

For  these  reasons  alone  the  beginning  of  any  enterprise  should 
be  reduced  to  an  understandable  formula  of  operation  and 
financing  which  would  carry  it  through  all  natural  vicissitudes 
to  the  time  when  it  can  be  brought  to  the  position  of  a  success- 
fully operating  business. 


Guarding  Expenditures 

The  above  considerations  emphasize  the  necessity  for  guarding 
expenditures.  Relative  to  this  a  specific  case  might  be  mentioned 
where  this  was  not  observed. 

Recently  the  writer  was  asked  to  analyze  the  finances  of  a 
promising  corporation  manufacturing  a  machine  much  in  demand, 
but  due  to  delay  in  obtaining  production  and  difficulties  of 
financing,  had  become  quite  entangled.  Investigation  disclosed 
that  while  it  was  true  that  delay  in  production  had  set  matters 
back,  the  indebtedness  was  chiefly  to  banks  and  men  not  to  an 
inordinate  extent.  It  was  easily  discernible,  however,  where 
the  weakness  laid.  The  managerial  department  had  for  eighteen 
months  previously  been  paying  salaries  to  unnecessary  employees 
which,  if  saved,  would  have  kept  the  corporation  free  of  debt 
and  with  a  considerably  enhanced  borrowing  capacity  necessary 
to  meet  all  needs  at  the  time  of  the  examination.     And    yet, 


Work   of  the    Promoter  45' 

because  of  an  improper  distribution  of  work  and  responsibility, 
the  company  had  been  brought  to  the  brink  of  disaster. 

The  relative  credit  value  of  an  enterprise  is  enhanced  in 
proportion  to  the  restrictions  placed  on  just  such  elaboration  of 
expenditures  in  the  initial  stages  of  an  enterprise.  Those  who 
supply  the  funds,  whether  private  individuals  or  bankers,  have 
developed  a  sense  of  quickly  determining  the  manner  in  which  a 
company's  money  is  spent.  It  is  constantly  becoming  a  more 
common  practice,  too,  to  employ  expert  investigators  to  make 
an  examination  of  an  industry  or  an  enterprise  requesting  loans 
or  financing  prior  to  advancing  the  funds.  In  this  way,  before 
assuming  risks,  everything  to  be  known  about  an  enterprise,, 
from  its  management  to  its  product,  is  placed  before  the  indi- 
vidual or  institution  contemplating  advancing  funds.  It  can 
readily  be  imagined  what  effect  the  above  extravagant  practices, 
would  have  upon  the  prospective  investor. 


What  the  Promoter  Does 

What  has  been  said  so  far  of  promoters'  activities  indicates 
clearly  their  importance,  and  the  fact  that  without  them  numer- 
ous enterprises  of  merit  never  would  be  launched.  The  term 
"promotion,"  however,  has  in  its  generally  accepted  meaning 
surrounded  itself  with  a  certain  degree  of  odium.  There  are 
reasons  why  this  condition  prevails.  Through  lack  of  knowledge 
on  the  part  of  those  responsible  for  them,  many  profit-producing 
enterprises  seeking  capital  often  fall  into  the  hands  of  promoters 
who  take  advantage  of  them. 

The  promoter  has  often-times  secured  his  profits  through  de- 
ception, rather  than  service.  Projects  have  been  "discovered" 
which  never  should  have  seen  the  light  and  what  purported  to- 
be  the  results  of  "investigation"  were  cleverly  contrived  false- 
hoods. The  assembling  of  these  ill-conceived  projects  proceeded 
in  a  similarly  delusive  way.  And  the  financing  which  followed 
was  characterized  by  two  unnecessary  ingredients,  "ballooa 
juice"  and  "water." 


46  La  notching    a    New  Enterprise 

Justification  for  Promoter's  Profit 

The  description  of  what  technical  and  honest  promotion 
•does,  renders  it  evident  beyond  doubt  that  legitimate  promotion 
services  are  worth  all  they  cost.  Inventors  and  other  evolvers 
and  initiators  of  new  processes  are  enabled  to  turn  over  to  the 
promoter  activities  with  which  they  are  not  competent  to  deal, 
yet  the  handling  of  which  is  essential  if  the  project  is  to  become 
a  going  concern.  Owners  of  oil  lands,  oil  fields,  coal  beds,  and 
factories  which  should  for  the  sake  of  economy  and  profits  be 
<ieveloped  into  usefulness,  find  the  promoter's  services  in  as- 
sembling their  propositions  decidedly  useful.  And  bankers, 
brokers  and  investors,  due  to  the  same  causes,  have  offered  them 
more  numerous  and  better  opportunities  for  the  placing  of  their 
funds. 


Garden  City  Press,  Inc. 

Newton,  Mass. 


TEST  QUESTIONS 

"LAUNCHING  A  NEW  ENTERPRISE" 

The  test  questions  which  are  unstarred  can  be  answered 
directly  from  the  Text  discussion.  You  will  find  them  helpful' 
for  purposes  of  review. 

The  questions  which  are  starred  call  for  original  thought, 
the  ability  to  apply  the  knowledge  gained  from  the  Text  to  the 
solution  of  new  problems. 

ANSWERS  TO  THESE  STARRED  QUESTIONS  ARE  GIVEN  ON 
THE  FOLLOWLNG  PAGE 

1.  What  factors  should  be  studied  in  considering  the  poten- 
tial profits  of  a  new  enterprise? 

*2.  What  makes  a  new  business  prosper? 

3.  What  elements  must  be  co-ordinated  in  any  proposed 
enterprise? 

4.  How  test  the  soundness  of  a  proposed  enterprise? 

5.  How  should  an  organization  be  built  up? 

6.  What  type  of  enterprise  constitutes  a  banking  proposi- 
tion? 

7.  What  should  be  the  composition  of  the  financial  structure 
of  an  enterprise? 

*8.  What  is  the  great  difficulty  with  most  new  enterprises? 

*9.  How  would  you  go  about  launching  the  American 
Institute  of  Finance? 

10.  What  factors  should  be  investigated  after  potential 
profits  have  been  figured  as  satisfactory? 


ANSWERS  TO  STARRED  QUESTIONS 
"LAUNCHING  A  NEW  ENTERPRISE" 

*2.  A  consideration  of  this  question  presumes  a  business  having  the 
elements  necessary  for  success.  The  essentials  then  are  a  well-organized 
sales  organization,  a  building  up  of  good-will  and  a  knowledge  of  actual  costs. 
Then,  given  good  internal  financial  management,  all  actual  willingness  to 
serve  and  an  ability  to  produce  prosperity,  is  assured. 

*8.  The  greatest  difficulties  with  most  new  enterprises  are  lack  of  organi- 
zation and  failure  to  provide  adequate  financial  backing.  After  costs  for 
the  first  year  are  figured,  at  least  25%  should  be  added  for  delays  and  inability 
to  get  quickly  on  a  large  producing  basis. 

*9.  Let  us  tell  you  our  experience: 

The  need:  Your  own  knowledge  of  the  need  of  adequate  financial  training 
speaks  for  itself. 

The  field:  We  found  no  adequate  sources  of  educational  financial  informa- 
tion whatever. 

Potential  profits:  We  were  assured  of  demand  because  of  the  need,  and  the 
universal  desire  for  knowledge. 

Costs:  High  at  first,  because  of  paper,  printing,  etc.,  but  decreased  costs 
could  be  anticipated. 

Management:  From  our  Staff,  we  chose  a  corporation  treasurer  for  our 
treasurer,  a  financial  man  for  our  service  department,  corporation  officials  for 
our  executives. 

Finances:  We  figured  on  considerable  loss  to  begin  with.  Stockholders 
were  given  to  understand  this  thoroughly,  and,  appreciating  the  probable 
•developed  demand  and  resultant  profits  were  ready  to  subscribe  freely,  if 
necessary. 


KEY  PROBLEM 

ox 
A  CORPORATION'S  FINANCIAL  STRUCTURE 

Given :  Two  Corporations 

A  B 

First  Mortgage  5's     $5,000,000         $4,000,000 

Debenture  6's 3,500,000  2,000,000 

Preferred  Stock  7%   1,000,000  600,000 

Common  Stock  Paying  5%  now    .  .  .  8,000,000  750,000 

Annual  Earning  Power    1,330,000  515,000 

(Average) 

Maximum  Yearly 1,550,000  710,000 

Minimum  Yearly    1.110,000  320,000 

Questions: 

On    which    corporation    does    the    common    stock   offer    the 
best  speculative  opportunities  and  why? 

On  which  corporation  does  the  common  stock  offer  the  best 
investment  safeguards  and  wh\-? 


'^<yOJIlV3JO^" 
^OFCAIIFO% 


'^mwm'^     "v/yaaAiNft-jftv 


^^ME•UNIVERS/^ 


"^J513DNYS01^ 


I  I 


SO 


^OFCAUFO^/)^      ^OFCAIIFI 


^lOSANCEl^^ 


"^saaAiNii-jftV^ 


^losANcntr^ 

o 


% 


^       '%ya3AINfl-3WV 


^lUBRARYQc. 


^OFCAlIFOff^ 


^<?Aavaani^ 


-^lUBRARY^?/. 

3  1  ir^^ 


^OFCA1IFO% 


^^Aavaan# 


^5MMINIVE1?% 


^J'iiaDNVSO)^ 


ce. 


CO 

<ril30NVS0# 


^lOSANCI 


•^     6 


i 


^     6 


•^  1   ir-'  ^ 


^5MEUNIVERS/^ 


^lOSANCnfj^ 


OJIIVJJO^         <<5130NVS01^       %a3AINIl-3WV^ 


^    ^?^'^ii!^% 


f 


I 


ameuniver%. 


^lOSANCn^^ 


=3 


o 

.=<3 


"^/JiGAiNn-aftV 


-55^lllBRARY^A, 


^OFCAllFOff^ 


•3  >— '>   I'  5 

^^Aavaan-# 


^ 


.^ummo/:.       #UBRARYQr 


.^WEUNIVER% 


o 

^J^3DNVS01^ 
^^MEUNIVER% 

< 


^TiiaoNVSOl^ 


^•lOS-ANGI 

i 


^lOSANCI 

O 


^        6 


ri-t 


^MEIINIVER% 


^lOSANCElCr^ 


^iimmo/r^ 


^. 


L  006  850  239  2 


FACILITY 


